This was the old American Dream. The new American Dream is very different. Rather than assuming things will just work out for the best, we must educate current and future generations about how to manage money and live within their means. Here are some true stories about the new American Dream.
In the red from rentals
Samantha and her husband live in a gorgeous house in Reno. This beautiful house with a very large price tag was purchased with an adjustable payment, which has been growing larger every year. As a result, they can no longer afford the payment. The current payment exceeds 60 percent of their total net income. In addition, they have been taking advantage of the buyer’s market in the last two years, purchasing several rental properties. It might sound like a solid plan but are they making money? Nope. They’re in the red on their house and all the rental properties, as well. The couple ultimately decided to short sell all the properties. They want to be financially healthy again and they must get rid of the bad investments that are draining their money every month.
Troy is a divorced federal employee who bought his home more than 10 years ago. He earns a limited income but his payment was very affordable at the time. Troy’s home is an average home in an average neighborhood. He was amazed that his home appraised for twice what he paid for it during the real estate peak.
Troy watched as his neighbors took out equity loans to finance new cars, boats, RVs and fabulous vacations. After toying with the idea, Troy also took out a second loan, called a line of credit. A line of credit is very much like a credit card loan — an additional debt to be repaid. The worst thing was that it added a second payment every month to his already limited income. But then, suddenly his life changed. He bought a new car, a Harley Davidson motorcycle and many other toys. Troy was gambling that home values would continue to go up so he could cash in the higher value to pay off his line of credit in a few years.
Troy and many homeowners like him took a gamble and lost. Paying off both loans is a bad investment decision, which would result in overpaying the bank by $250,000 for a house that will depreciate in the next 25 years. Troy would rather short sell and start over in three years than continue his misery for another 25 years.
Don and Amy bought a gorgeous, brand new, two-story, four-bedroom home in Reno. They purchased directly from the builder with a 100 percent loan. Life was great for the first two years. Don was the primary money maker in the family but was laid off in 2009. Although he received a small weekly unemployment check, almost 80 percent of their total income went to the monthly mortgage. Don and Amy were turned down for a loan modification from their bank multiple times because of Don’s unemployment.
Labeling them as bad credit risks, their bank suggested that they short sell. At first the decision was a painful one to the couple, however during the initial consultation they learned that they can be homeowners again in just three years. Although next time, they decided, their gorgeous new home will be a lot smaller.
For those of us who have overextended ourselves with credit, borrowing money that we cannot repay, it’s time to learn to cut back on taking on more debt. It is time to learn to look at the big picture and realize that having more expenses than we have income is a bad pattern — a pattern that we must stop if we want future generations to be financially responsible.
What is the new American Dream? Learn to dream smaller. Why? Bigger is not always better. We are learning to drive smaller cars and use smaller computers. We can also learn to live in smaller homes that come with smaller price tags, ultimately resulting in smaller problems than the ones experienced in these three stories.
Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.